Vodafone pays just £1,400 tax on profits of £3.5bn

Vodafone booked £3.5billion in profits through a subsidiary in a tax haven but paid just £1,400 in tax on the earnings, Financial Mail can disclose.

The subsidiary of the mobile phone giant  Vodafone Investments Luxembourg  employs just 14 staff and lends out billions of pounds to other Vodafone companies around the world, accounts filed last week showed.

The other operating companies can deduct interest they pay on the Luxembourg loans against their taxable profit, but the interest is booked as profit by Vodafone in the tax haven at rock bottom tax rates.

The subsidiary was at the centre of the mobile phone giants controversial £1.25billion tax deal with Revenue & Customs. Tax officials wanted to charge tax on VILs profits, alleging that it was an elaborate tax avoidance structure.

Vodafone said this week that the majority of VILs profits for the year to the end of March 2011 came from tax-exempt dividends.VILs loan income, while taxable in Luxembourg, was offset by writedowns on shareholdings in previous years.

A Vodafone spokesman said: In the financial year to March 31, 2011, Vodafone paid £2.6billion in tax and the groups effective corporate tax rate was 24.5 per cent.